Saturday 16 February 2019

AIB piles pressure on homeowners by raising variable mortgage rate

Charlie Weston and Donal O'Donovan

BAILED-out AIB is to hike its mortgage costs for customers on variable rates from September.

Its move was followed within hours yesterday by Bank of Ireland and its subsidiary ICS, both of which are increasing mortgage rates for new borrowers.

The AIB move to raise its variable rate for new and existing borrowers will mean additional payments of €60 a month for a homeowner with a €200,000 mortgage.

Around 70,000 will be affected by the rise of 0.5pc. Owner-occupiers will see their standard variable mortgage increase from 3pc to 3.5pc.

This comes despite the European Central Bank cutting its key lending rate to banks at the beginning of this month.

Every 0.25pc rate increase pushes up the monthly cost of repaying each €100,000 borrowed by about €15.


This means that a family with a €300,000 mortgage faces monthly increases of €90 from September 3. Over a full year this will cost an extra €1,080.

Around one in five of AIB's mortgage customers will be affected by the move. The bank is state-owned after receiving €20.7bn in state funds.

Bank boss David Duffy defended the move yesterday, claiming that AIB would still have the lowest variable rate in the market after the increase.

The bank's current pricing levels were "uneconomic" relative to the bank's cost of funds, he said.

"As previously indicated, AIB's mortgage portfolios, including the standard variable rate portfolio, are loss-making," a statement said.

It added that the average variable rate in the market, when AIB is excluded, was 4.3pc. The average variable rate in Britain was 4.1pc. The bank's variable rates for investors will jump from 3.95pc to 4.45pc.

Figures show that 34,000 customers have had their mortgages re-arranged with AIB.

The bank is also refusing to pass on this month's ECB rate cut to those with mortgages at EBS, which it now controls. The EBS rate is one of the highest variable rates at 4.33pc.

Only Ulster Bank, Permanent TSB, and Halifax/Bank of Scotland have passed on the latest ECB cut. However, Ulster and Permanent still have the highest variable rates.

Bank of Ireland and its subsidiary, ICS Building Society, have increased the lending rate for new mortgage borrowers by 0.25pc. The bank's best-value variable rate will rise to 3.8pc, with the lowest ICS variable rate going up to 4.90pc.

Asked why it was raising rates, a Bank of Ireland spokeswoman said it was "critical that we charge rates that are sustainable whilst providing competitive rates for our customers".

Mortgage broker Karl Deeter said the fact that the two pillar banks -- AIB and Bank of Ireland -- raised lending rates on the same day meant there was no real competition in the market.

Rachel Doyle of the Professional Insurance Brokers Association said justification for an AIB interest rate hike of 0.5pc at this point was questionable.

She said: "While the bank does have the lowest mortgage interest rate, it has also received billions from the taxpayer."

Irish Independent

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